The dilemma facing every business in the West

The fast approaching retirement age for the baby boom generation threatens huge knock-on effects for industry resources - not least in areas such as engineering where the average age of employees is much higher. So, can anything be done to alleviate this? Richard Willsher reports on the measures being taken to counteract a diminishing workforce

When a report appeared on the BBC’s website that the UK retirement pension age may need to rise, an apparently alarmed member of the public e-mailed the site: “Can anyone tell me what kind of jobs 67-70-year-olds are going to be doing?”

But his concern may have been unjustified. A raft of recent research is now pointing to the need for businesses to retain older workers, and those companies who do not risk losing a valuable human resource.

Year-by-year from now on, the post-World War Two baby-boomers will retire in droves. “Among countries in the European Union,” reports IBM Business Consulting Services - Human Capital Management group, “the number of older workers (50-64 years) will grow 25%, while younger workers (20-29 years) will decrease by 20% over the next two decades. And in the US, by 2010, the number of workers between ages 45-54 will grow by 21%, the number of 55-64-year-olds will expand by 52%, and the number of 35-44-year-olds will decline by 10%.”

The problem of the shrinking workforce is set to affect all members of the Organisation for Economic Cooperation and Development (OECD) with Italy, Japan and South Korea being among the worst affected over the next 50 years. Countries such as Mexico and Turkey will also experience an ageing workforce. Some industries will suffer more than others. Careers offered by certain sectors, such as engineering and oil and gas exploration, have failed to appeal to young people. The Financial Times reported in an article that: “At an estimated average age of 49, half the workforce [in the oil and gas industry in Europe and the US] is expected to retire in the next five to 10 years. The US nursing and teaching professions face a similar demographic crunch, as do aerospace and utilities companies.”

So it is a short leap of the imagination to conclude that the answer is simple; all you have to do is persuade people not to retire. But it is not as straightforward as that. Dr Wesley Payne McClendon, European partner at Mercer’s Human Capital Advisory Services, says that employers are faced with some difficult considerations.

But there are definite upsides to retaining older staff as Dr McClendon also concludes. An organisation can increase intellectual capital, experience and likely technical expertise. Therefore, an older workforce may be more productive given they have more experience. Older workers are much less motivated by career progression and promotional opportunities and, therefore, comprise a more stable workforce.

Consultants such as Accenture, Mercer, IBM, Deloitte and Hewitt - who are all now consulting in this aspect of human resource management - have spotted that many businesses are not aware of the effect of ageing employees on their business. As a consequence, they will have no plans in place to address the loss of skills that will occur as their older workers retire.

“What we are telling clients they should do,” explains Mary Sue Rogers, global human capital management leader at IBM Business Consulting Services, “is the diagnostic which asks when will you have this problem, because every business in the Western world will have it sooner or later. Then what is the strategic plan for how you’re going to deal with it? Certain roles and jobs tend to have a higher age profile than others. So it’s about looking at the jobs you have in the organisation, what skills they require and how ageing and retirement is going to affect them.”

Then, she says, it’s a matter of coming up with creative ways to meet the needs of the organisation by offering older workers incentives to join or to stay with the organisation.

Why creative? Because older workers, while they may be well motivated, loyal and their skills valuable, may not want to work full-time. They may not need to if their finances are well organised or, as they get older, they may find a full week’s work over taxing. It is a question then of coming up with an employment package which is mutually beneficial to employer and employee.

Senior consultant Kevin Wesbroom, of Hewitt Associates, says: “The biggest single win-win is the flexible or phased retirement approach. This is the ability, as far as the individual is concerned, to work less than the full-time work schedule. Typically, individuals might be looking to do three or four days a week, still having a significant involvement where they can. They can use the skills that the employer wants but it suits their lifestyle requirements. As far as the employer is concerned, it suits him because he’s got access to skills and will not have to pay as much for them as for a full-time person. He gets a motivated individual who wants to contribute and, therefore, is good value. Often, older people still have a love for the job and may not be driven by the financial attractions as they are probably more financially secure.”

In its October 2005 report, Tackling Age Discrimination in the Workplace - Creating a New Age for All, the London based Chartered Management Institute (CMI) concludes: “There is demand from employees for more flexible arrangements in relation to retirement. This may take the form of flexible working arrangements - 68% anticipate working part-time towards the end of their career, and 24% of respondents even say that this would be the most important factor in their decision-making on when to retire. However, only 34% of organisations currently offer all older workers the opportunity to work part-time.” An acid test would be for readers of this article to consider whether their firm has procedures of this sort in place. Another would be to cast you mind over your own organisation and imagine what would happen if particular older staff retired and left the business. What would be the impact of the loss of their skills, expertise and knowledge of the business?

The consultants are telling us that balancing the needs of individuals with the needs of employees is the most sensible way forward. Successfully managed, it might, in due course, even render redundant the principle of a statutory retirement age which is looking increasingly inappropriate for all concerned. But that is another story and, in any case, the pace of employers in dealing with the issues of retaining the staff they need is likely to be faster and more effective than waiting for the resolution of politically-charged debates in many countries over public sector pension funding.

Richard Willsher is a financial and business writer with a background in investment banking.